Odeta Kushi, deputy chief economist at First American in Washington, D.C., said the rate conversation has shifted in a way few people anticipated at the start of the year.
“A rate hike is not inevitable, but it’s no longer unthinkable,” Kushi told Mortgage Professional America. “Earlier this year, the market’s base case was that the Fed would be cutting rates. Today, the conversation has shifted toward how long rates may need to remain elevated and whether inflation risks could eventually require a different policy response.”
On the question of whether inflation stays contained in energy or spills over more broadly, Kushi said that is what will ultimately drive the Fed’s next move.
“If inflation remains concentrated in energy and core inflation stays relatively contained, the Fed can remain patient,” she said. “If higher energy costs begin feeding into transportation, goods, services, and inflation expectations, the conversation changes.”
What it means for brokers
Kashkari is not alone in moving hawkish. CNBC reported that New York Fed President John Williams said Thursday he expects inflation to ease and sees current policy well-positioned, while Chicago Fed President Austan Goolsbee said he remains concerned about inflation but declined to speculate on where rates are heading.
